URI  Stock Forecast: The Safe Haven in the Inflationary Time

Yuxiao YangThis URI Stock Forecast article was written by Yuxiao Yang – Financial Analyst at I Know First.

Highlights

  • United Rentals announced that POWRBANK will provide its customers with zero-emission power systems through the introduction of battery systems in their rental fleets.
  • The ROE of the company is 26.80% that higher than 88.64 of the companies in the Industry.
  • The Piotroski F-Score provides a positive outlook for URI’s stocks.
(Source: flickr.com)

Overview

United Rentals, Inc. (NYSE: URI) is the largest equipment rental company in the world, with about 14 percent of market shares of the equipment rental industry in the U.S. in 2021, headquartered in Stamford, CT, founded in 1971. United Rentals has an integrated network of 1,278 rental locations in North America, 11 in Europe, 28 in Australia, and 18 in New Zealand. In North America, the company operates in 49 states and every Canadian province.

There are two reporting segments: General Rentals and Specialty Rentals. General Rentals offers construction, industrial and homeowner equipment for rent, and related services. Specialty Rentals includes the rental of equipment and tools for underground construction, temporary power, power distribution, highway safety, climate control, fluid solutions, disaster recovery, tool management, mobile storage, and related services.

The Long-Term Growth in the High-Inflation Environment

Today we live in a high-inflation period and we are interested in finding long-term investment tools which will be successful in the current macroeconomic environment. Benefited by its decentralized industrial structure, URI its decentralized industrial structure could better to hedege risks from inflation. The company’s customer base splits between industrial and commercial construction, and notably includes sectors such as energy, healthcare, utilities, railroads, and other infrastructure. Many projects are directly or indirectly funded by government spending or by companies in sectors that can remain active during inflationary periods. Another positive factor would be the increase demand, the rising equipment price and rising interest rates brought by inflation make many people prefer to rent rather than buy.

URI posted strong results for 2021 (the net income is $1386 mln) compared to both 2020 ($890 mln) and 2019 ($1174 mln). We can notice that the total revenue is $9716 mln with a growth of 13.90% compared to 2020. In total, the company has overcome the consequences of the pandemic in 2021 but the revenue from the General Rentals source is still less than it was in 2019.

(Figure 1: URI’s Revenue Structure for the period of 2019 – 2021)

Moreover, URI carries significant debt on its balance sheet, a long-term debt takes 43% of URI’s liabilities in 2021. Rising interest rates usually accompany rising inflation, so long-term debt at low-interest rates becomes more valuable (or at least less burdensome to repay).

United Rentals announced that POWRBANK will provide its customers with zero-emission power systems through the introduction of battery systems in their rental fleets. The company’s partnership with manufacturer POWR2 Energy Solutions represents a significant investment in sustainable site Solutions for United Rentals customers in North America. United Rental’s industry-leading scale will ensure that its investments in emissions reduction will have a broad impact and make it the largest generator rental fleet in North America. In addition, the power leasing system market will grow at a steady rate in the future. The gap between supply and demand in the power market leads to the demand for power leasing systems. As a major player in the global power leasing system market operation, United Leasing increases its market share in the global power leasing system market worldwide.

*Data source: gurufocus.com
(Figure 2: URI vs Retail-Cyclical Industry in TTM)

According to GuruFocus, United Rentals is one of the most efficient companies in the Business Services industry. URI’s ROE is 26.8% that better than 88.64% of companies in the Business Services industry. The Operating Margin of 23.49% is higher than 89.14% of companies in the industry.

*Data source: gurufocus.com

The Altman Z-score, which determines the result of a credit test, stays in the Grey zone. At the same time, URI looks interesting in terms of the Piotroski F-Score. Piotroski F-score is a number between 0 and 9 that is used to assess the soundness of a company’s financial position. A score of 7 may indicate that the company’s stock is undervalued and can be interpreted by investors as a good signal to buy the stock.

(Source: finance.yahoo.com)

The company is going to present the financial report for 1Q2022 on April 27th, 2022, and it is expected that the company will show an EPS of $5. The Yahoo Finance coverage for the company is performed by 18 analysts: 6 and 2 of them take Strong Buy and Buy positions, while 8 and 2 of them take Hold and Underperform positions. The analysts’ community puts the average target price for the stock at $405.60 while it is traded at $305.58.

URI Stock Forecast: Conclusion

URI‘s leading position in the industry and strong financial performance show a clear signal that URI is a buy stock. URI is well protected from the high-inflation problem. During a period of rising prices, renting equipment makes more sense than buying due to the rising equipment price and rising interest rates, which increases the cost of debt to purchase this equipment. In addition, URI looks promising in the context of the Piotroski F-Score.

It is worth paying attention that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts, supporting my position for the URI stock forecast. The light green for the short-term forecasts is mildly bullish, while the darker green is a strong bullish signal for the one-year forecast.

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Please note-for trading decisions use the most recent forecast.